Adam Parsons

Business correspondent

After a sustained period of growth featuring record highs, Wall Street has caught a cold, and the rest of the world has started sneezing.

Is it a sign that we may be heading back into recession, or just a necessary re-balancing of an overheated economy?

:: What has happened?

Stock markets across the world have fallen sharply. In America, the Dow Jones Index experienced the biggest one day fall in its history. Overnight, markets in Asia have tumbled and the FTSE 100 opened down more than 3%.

Partly because of fears that America is about to be hit by rising inflation. Tax cuts, strong corporate results and low unemployment could all mean rising inflation and that, in turn, might mean that interest rates go up.

:: Why does that scare investors?

Because when interest rates increase, that tends to slow corporate growth. Companies have to pay more to service debt and they might borrow less. But rising interest rates mean you have other options for where to invest money and shares would no longer be the only game in town.

:: Anything else?

A lot of stock trading is done automatically by computers, using very complex algorithms. At volatile times like this, they can sometimes be a bit more jittery than you might imagine.

:: Is this a crisis?

No. Certainly not yet. Stock markets round the world are still at historically high levels. Some people think that a correction, such as a big fall, is long overdue.